Risk calculation is a preliminary analysis of future transactions for possible losses and profits. Before making a sale in the fund market (opening a position), it is necessary to determine the likely risk situations. After that the trader will be able to manage the risk.

Risk management is a strategy for working on the financial market, in which potential threats and possible profits are evaluated. This service is offered by some brokers. Its principle is that you can set a certain deposit ceiling and loss limit, upon reaching which trading will be stopped. There are no strict rules. You yourself determine the limit values. The idea is that more profitable operations in most cases involve more risk. You can go into a trade knowing that you will either make a little or lose a little. Or another option is to earn “all at once” or lose a significant amount of capital.

For example, your deposit is $ 100. Your losses are 20%, and you have $ 80 left in your account. 1% in this case will be equal to $ 0.8. In order to reach the deposit of $ 100 again, you need to earn 25%. That is, simply put, the more you have lost – the more you will have to earn. In an effort to restore the balance you can get into even greater deficit. The process is avalanche-like.

Risk management helps you understand how much a trader can lose in the course of a transaction. It is very useful to keep a diary and record all your trades. This will allow you to create statistics and find out on which assets you make more profit and on which you lose it; trace the dynamics of trading over a certain period of time (day, week, month); figure out which instrument you sell the best, etc.

It is important to set the risk limit per day and the risk per trade, because you can not be a hundred percent sure whether the trade will be profitable or not. To do this, you need to set the Stop Loss, for example 50 dollars, which means that if the price reaches the level of your Stop Loss, then you will lose only 50 dollars. This is called the risk per trade.

Risk per day. We recommend you to set a risk per day of no more than 2% of the deposit amount. For example, the size of your account is $10,000, which means the risk per day would be $200 . Let’s assume you have 4 trades per day: that is, the risk per trade should be $50. If the daily risk is reached (you have lost 2% of your deposit, in our case $200), then you should stop trading that day.

Be wise and don’t get caught up in the excitement. Remember that you are risking your own money.

To learn how to calculate your risk in Tradingview, watch this video: